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The Securities and Exchange Commission has moved to eliminate a long-standing regulation designed to stop private equity firms and other investment advisers from using political donations to secure management of public pension funds. The proposal, published quietly earlier this month, targets the so-called pay-to-play rule that has restricted such contributions for nearly two decades.

The rule bars asset managers from receiving compensation for handling money from government entities, including state and local pensions for teachers, police officers, and firefighters, for two years after making donations to the elected officials who oversee those funds. It was adopted following multiple scandals in which Wall Street firms delivered large contributions or secret payments to politicians in exchange for lucrative contracts managing billions in retirement assets. In several cases those investments later declined sharply, leaving public workers with reduced returns.

SEC Chair Paul Atkins defended the proposed rescission by arguing that current compliance practices among many firms already limit the risks the rule was meant to address. The commission has not detailed new enforcement mechanisms or alternative protections to replace the existing restrictions.

Critics of the change point to the continued size and influence of the private equity industry in public finance. Firms such as Apollo, Carlyle, and Quadrangle have historically sought access to pension capital, which offers stable, long-term fees. Removing the donation ban would reopen channels for political spending that the original rule was written to close.

The measure was created after federal and state investigations revealed patterns of contributions timed directly with the awarding of advisory contracts. Some of those arrangements involved not only disclosed donations but also undisclosed payments routed through intermediaries. Pension losses tied to those deals affected thousands of retirees whose accounts depended on steady investment performance.

Public pension systems remain a major source of capital for private markets. State and local plans hold trillions in assets, and management fees represent a significant revenue stream for advisers. The pay-to-play rule was intended to ensure that selection decisions rest on investment merit rather than political access. Its removal would shift oversight back to state ethics laws and federal campaign finance statutes that vary widely in strength and enforcement.

Advocates for public employees have warned that the change could recreate the conditions that prompted the original regulation. They note that pension boards are often composed of elected officials who face campaign-finance pressures and that private equity compensation structures can include substantial performance fees even when underlying returns lag benchmarks.

The SEC proposal comes as the Trump administration has signaled broader interest in reducing regulatory constraints on financial firms. Atkins, a former Treasury official and longtime advocate for lighter oversight, was confirmed to lead the commission earlier this year. The agency has not indicated a timeline for final action on the pay-to-play rescission or whether public comment will alter the current draft.

If completed, the move would mark the most significant rollback of anti-corruption protections in this area since the rule took effect. State treasurers and pension trustees would then decide whether to adopt their own contribution limits or rely on existing disclosure requirements that do not prohibit the underlying transactions.